Brazilian government must ensure oil bonanza continues

Brazil has long and deservedly been renowned as a global commodities powerhouse. It is the leading exporter of iron ore, sugar, ethanol, beef, poultry, orange juice, coffee and tobacco; it could soon take the lead in soybeans and cotton. But over the past 10 years Brazil has also shown itself to be a promising new frontier for oil production; it is expected to see stronger growth in output than any other non-Opec country over the next five years. In fact, Brazil is poised to become the largest oil producer in South America over the next decade unless Venezuela begins investing in exploration and production.While the trend in South America has been to nationalise oil and gas production after the rise in world oil prices, Brazil’s success has been based on the opposite strategy. Ten years ago this month, Brazil passed the Petroleum Law, which ended Petrobras’ monopoly. Since then, dozens of private companies, including Shell, Chevron and BG, have invested billions. These companies are all now seeing returns after a series of huge finds in deep waters off the coast of Brazil.

When the Petroleum Law was passed, oil and gas represented only 2.75% of gross domestic product (GDP); this has now surged to 10.5% of Brazil’s near-trillion dollar GDP. Royalties from oil production paid to state, municipal and federal governments have increased from $150m (